2018 (5) TMI 854 - AAR - GST

EPC Contract for Solar Power Plant Not a Composite Supply; Tax Rate for Sub-contractors Remains Unclear

In Re : Giriraj Renewables Private Limited

In Re : Giriraj Renewables Private Limited - 2018 (12) G. S. T. L. 538 (A. A. R. - GST), [2018] 59 G S.T.R. 363 (AAR) Issues Involved:1. Whether the supply of turnkey Engineering, Procurement, and Construction (EPC) Contract for constructing a solar power plant can be considered a Composite Supply under Section 2(30) of the CGST Act, 2017.2. If yes, whether the Principal Supply in such a case can be said to be 'solar power generating system' which is taxable at 5% GST.3. Whether the benefit of the concessional rate of 5% for solar power generation systems and parts thereof would also be available to sub-contractors.Issue-Wise Detailed Analysis:Issue 1: Composite Supply under Section 2(30) of the CGST Act, 2017The applicant argued that the EPC contract for constructing a solar power plant should be considered a Composite Supply as it involves both goods and services bundled naturally. They contended that the principal supply in this composite supply is the solar power generating system, which should be taxed at 5% GST. The applicant presented various legal provisions, including definitions of composite supply, principal supply, and works contract under the GST Act. They also cited global jurisprudence and previous judgments to support their claim.The Authority for Advance Ruling (AAR) observed that the contract includes engineering, design, procurement, supply, development, testing, and commissioning of the solar power plant. The AAR noted that such contracts are commonly understood to be works contracts involving supplies of goods and services. The AAR further examined whether the transaction results in an immovable property, which is a critical aspect of defining a works contract under the GST regime. The AAR referred to various judgments, including those of the Supreme Court, to understand the term 'immovable property.'The AAR concluded that the solar power plant, once installed, becomes an immovable property as it is intended to be permanent and cannot be moved without substantial damage. Therefore, the EPC contract for constructing a solar power plant is a works contract under Section 2(119) of the GST Act. Consequently, the supply of the solar power plant cannot be considered a Composite Supply under Section 2(30) of the CGST Act, 2017.Issue 2: Principal Supply and Tax RateSince the AAR determined that the EPC contract is a works contract, it is deemed a supply of services under Schedule II of the GST Act. As a result, the concept of principal supply does not apply. The AAR stated that there is no relevance to determining the principal supply in this context, and the question of whether the solar power generating system is taxable at 5% GST does not arise.Issue 3: Concessional Rate for Sub-ContractorsThe applicant sought clarification on whether the concessional rate of 5% GST for solar power generation systems and parts would be available to sub-contractors. The AAR noted that the applicant did not provide sufficient details or documents regarding the sub-contracting agreements and the nature of supplies made by the sub-contractors. Therefore, the AAR could not address this question in the present proceedings due to the lack of necessary information.Conclusion:1. The supply of turnkey EPC Contract for constructing a solar power plant is not considered a Composite Supply under Section 2(30) of the CGST Act, 2017; it is a works contract under Section 2(119).2. Since the transaction is treated as a works contract, the concept of principal supply does not apply, and the question of the tax rate for the solar power generating system is irrelevant.3. The AAR could not address the question of the concessional rate for sub-contractors due to insufficient information.